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On efficiency and effectiveness:
some definitions
Productivity Commission
Staff Research Note
May 2013
The views expressed in
this note are those of the
staff involved and do not
necessarily reflect the views of the
Productivity Commission.
 COMMONWEALTH OF AUSTRALIA 2013
ISBN
978-1-74037-438-5
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An appropriate citation for this paper is:
Productivity Commission 2013 On efficiency and effectiveness: some definitions, Staff
Research Note, Canberra.
The Productivity Commission
The Productivity Commission is the Australian Government’s independent research
and advisory body on a range of economic, social and environmental issues affecting
the welfare of Australians. Its role, expressed most simply, is to help governments
make better policies, in the long term interest of the Australian community.
The Commission’s independence is underpinned by an Act of Parliament. Its
processes and outputs are open to public scrutiny and are driven by concern for the
wellbeing of the community as a whole.
Further information on the Productivity Commission can be obtained from the
Commission’s website (www.pc.gov.au) or by contacting Media and Publications on
(03) 9653 2244 or email: maps@pc.gov.au
On efficiency and effectiveness: some
definitions∗
The terms efficiency and effectiveness are commonly used, yet often are applied in
slightly and occasionally widely different ways. This staff research note sets out
how the Productivity Commission defines these terms along with related concepts
such as cost-effectiveness and productivity.
Introduction
The terms of reference for inquiries and studies undertaken by the Productivity
Commission often require the Commission to assess the efficiency and effectiveness
of different policies and programs. For example, the terms of reference received on
mineral and energy resource exploration asked the Commission to: ‘examine
exploration approvals systems and processes, within and across jurisdictions, to
assess their effectiveness and efficiency’ (Bradbury, 27 September 2012).
Economics literature uses a variety of terms to express notions of efficiency and
effectiveness, as do the literatures of other disciplines. However, these terms are not
always defined nor interpreted consistently within and across disciplines. For
example, in some dictionaries, ‘efficient’, ‘cost efficient’ and ‘cost effective’ are
given as synonyms. 1 While many economists and others would distinguish between
these terms their uses do not always align. For example, the term ‘cost effective’ is
sometimes used to mean that the outcome of an action was worth more than its cost.
Similarly, in everyday language the word ‘efficient’ can meaningfully carry a
modifier, like ‘most’ or ‘barely’ or ‘super’. To many economists these terms have
very clear and distinct meanings, and such applications are viewed as at best
imprecise, and at worst misleading.
∗ This Staff Research Note is an updated version of an Internal Research Memorandum produced
in February 2006, written by Jonathan Pincus. The original document was motivated by Helen
Owens, and drew heavily on the preliminary work of Steven Argy, Sarah Box and Sue Holmes,
and from comments from Mike Woods and a number of other Commissioners and staff.
1 Some dictionary definitions are:
Effective: serving to affect the purpose; producing the intended or expected result (Macquarie).
Efficient: productive of desired effects; especially: productive without waste (MerriamWebster); working productively with minimum wasted effort or expense (Compact Oxford).
Cost-efficient: productive relative to the cost (RhymeZone).
Cost-effective: economical in terms of tangible benefits produced by money spent (MerriamWebster); effective or productive in relation to its cost (Compact Oxford).
ON EFFICIENCY AND
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So what does the Commission (and most economists) mean when it assesses the
efficiency and effectiveness of a policy or program? This research note seeks to
provide some clarification.
Economic efficiency
For economists, the critical criterion applied to evaluations of policies and programs
is economic efficiency. Essentially, overall economic efficiency is attained when
individuals in society maximise their utility, given the resources available in the
economy. 2 In other words, an increase in economic efficiency improves the
wellbeing of the members of the community — the ultimate goal of most policy or
regulatory endeavours. 3
The concept of efficiency has a number of dimensions. Overall economic efficiency
requires satisfaction of productive, allocative and dynamic efficiency (box 1). 4
•
Maximum productive efficiency requires that goods and services be produced at
the lowest possible cost. A productively efficient outcome uses the least cost
input mix required to produce a given output of any good or service. This
concept goes beyond technical efficiency, which is the lowest volume of inputs
per unit output for each possible combination of inputs, as it takes into account
the prices of the inputs.
2 This is called achieving ‘Pareto efficiency,’ or ‘reaching the utility frontier’. With this allocation
of resources no one can be made better off without making someone else worse off, nor could
the winners from a reallocation compensate the losers (Kaldor’s extension of Pareto efficiency).
Note that this criterion takes the initial distribution of resources (and utility) as given, and only
considers changes from this state.
3 Wellbeing includes both the quality of life that people experience as well as their standard of
living that comes from the goods and services that they consume. These goods and services are
produced in the market and non-market sectors of the economy using human, produced
(physical and knowledge), natural and social capital resources. While intrinsic outcomes such as
rights, freedoms and relationships are important for the quality of life, and interact in complex
ways with production processes and the material standard of living, economic analysis mostly
focuses on the allocation of resources for the production of goods and services to meet the
preferences of the population. The concept of efficiency relates to this allocation, and hence the
standard of living contributions to wellbeing.
4 In addition to these three components of efficiency, a number of other terms are used in the
literature, but for brevity are not discussed here. They include: consumption efficiency;
exchange efficiency; administrative efficiency; and inter-temporal efficiency (the last being a
version of dynamic efficiency).
2
Box 1
Components of economic efficiency
Economic efficiency is about maximising the aggregate or collective wellbeing of the
members of the community. Economists commonly say that economic efficiency
requires satisfaction of three components.
Productive efficiency is achieved when output is produced at minimum cost. This
occurs where no more output can be produced given the resources available, that is,
the economy is on its production possibility frontier (PPF). In panel I below, a shift from
A to B, or to C or to D is an improvement in productive efficiency.
Productive efficiency incorporates technical efficiency, which refers to the extent to
which it is technically feasible to reduce any input without decreasing the output, and
without increasing any other input. When more than one input is used, or more than
one output is produced, the ratio of outputs to inputs can be formed only if inputs and
outputs are summed into two scalars. If prices are used for that purpose, then technical
efficiency merges into productive efficiency.
Allocative efficiency is about ensuring that the community gets the greatest return (or
utility) from its scarce resources. A country’s resources can be used in many different
ways. The best or ‘most efficient’ allocation of resources uses them in the way that
contributes most to community wellbeing. In panel II below the move from B to C is an
improvement in allocative efficiency as a higher level of utility can be achieved by
better matching the output mix to preferences.
Dynamic efficiency refers to the allocation of resources over time, including allocations
designed to improve economic efficiency and to generate more resources. This can
mean finding better products and better ways of producing goods and services. In
panel III this is represented as a shift out in the production possibility frontier, with
consumption rising as the economy moves from C to E. This shift can arise from
innovation (producing more with less) and from growth in resources such as capital
and labour. Improvements in dynamic efficiency bring growth in living standards over
time.
Source: Adapted from PC (1999).
ON EFFICIENCY AND
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•
Maximum allocative efficiency requires the production of the set of goods and
services that consumers value most, from a given set of resources. An
allocatively efficient outcome is the output mix of the economy that best satisfies
preferences. It must pass three tests:
– no good or service is eligible for inclusion in this set unless the value of the
benefits that it offers is at least equal to its costs (both broadly conceived)
– the most efficient output level for any good or service is attained, where
marginal benefit equals marginal cost
– of the goods and services satisfying these two cost-benefit tests, those with
the highest net benefits are included in the economically efficient set.
•
Maximum dynamic efficiency is achieved when these tests are met for
investments, as well as for production for current consumption.
In brief, an activity is economically efficient if there is no other use of the resources
that would yield a higher value or net benefit. Alternatively, an activity is
economically inefficient if its costs exceed its benefits; or if it can be shown that the
resources could be used to produce something with a higher net benefit.
Efficiency and public policy
These efficiency concepts are as applicable to the activities of the public sector —
taxing, spending, regulating, policy making, etc. — as they are to everyday,
marketed goods and services. The difference is that for marketed goods and services
prices play the allocative role (Adam Smith’s invisible hand). Under specific
conditions markets can be shown to allocate resources to the outputs most preferred
by people in way that maximises economic efficiency. 5 Economic institutions and
policy can assist in improving economic efficiency by, for example, helping align
market prices of goods and services to their true economic costs. Beyond this, in
response to significant market failure, or for other reasons, such as redistribution or
risk management to improve the quality of life, governments make decisions that
affect production, consumption and investment. Ensuring that these decisions
5 This is the first fundamental theorem of welfare economics. The conditions are complete markets
(which also requires full information and no externalities) and perfect competition (no producer
or consumer has market power). Market failure occurs when one or more of these conditions do
not hold. However, markets may still provide the economically efficient outcome where market
failures are minor, and/or the resource cost of correcting the failures is high.
4
improve overall wellbeing requires that they satisfy the economic efficiency
criterion. 6
In practice, much of the Commission’s work is focused on achieving gains in
efficiency (for the purpose of improving community wellbeing). For example,
improving economic efficiency can involve reducing the costs of production per
unit of output (improving technical or productive efficiency), matching the supply
of goods and services to those most desired by individuals (improving allocative
efficiency), and/or removing barriers to innovation and flexibility (improving
dynamic efficiency).
The Commission also aims to identify the efficient option — the policy, program or
outcome that results in the highest net benefit to the community as a whole
(maximises net benefits). A definition that lacks precision would be where an
arrangement is considered efficient if resulting benefits outweigh all costs involved,
so that a net benefit is generated. While the generation of an extra or additional net
benefit (to the community) would result in an efficiency improvement, compared
with having no policy or program, 7 there may be an alternative approach that would
achieve higher net benefits. The efficient option is that which generates the highest
net benefit. That is, benefit greater than cost is a necessary but not a sufficient
condition for economic efficiency.
There are times when efficiency can be defined, explicitly or implicitly, to be the
narrower concept of technical efficiency. This can be appropriate, for example,
when undertaking a program evaluation; and the terms operationally efficient can be
used in this context. The question then is ‘Is there a better (more efficient) way of
achieving the objectives?’ But generally it is also necessary to ask the broader
questions, relating to allocative (and dynamic) efficiency: Are the specified
objectives the right ones? Is the program or policy the most appropriate use of
resources? And, taking dynamic considerations into account, does the program or
6 If economic efficiency is defined in terms of income rather than utility the connection between
community wellbeing and economic efficiency can be less conclusive. For example, if the
purpose of policy is to redistribute income, the Hicks-Kaldor criterion defined in terms of
income can be violated: the winners could not fully compensate the losers, without themselves
becoming losers. If, however, economic efficiency is defined in terms of utility, to the extent
that the redistribution reflects the preferences of the people in the community (they care about
the income of the less well-off) the Hicks-Kaldor criterion is satisfied. However, in practice
measuring such values is difficult and whether the level of redistribution maximises wellbeing is
generally left to the political process to determine.
7 If a number of individual markets fail to meet the requirements for full efficiency, improving the
efficiency of one of them is not guaranteed to improve the overall efficiency of the economy.
This is referred to as the problem of second best.
ON EFFICIENCY AND
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policy enhance future outcomes in a way that supports the community’s ongoing
wellbeing?
Effectiveness
In general, effectiveness the extent to which stated objectives are met — the policy
achieves what it intended to achieve. The goal can be as broad or as narrow as is
deemed appropriate — a continuum exists, ranging from achieving very specific
outputs (such as ‘increasing the number of solar heating panels installed in new
houses’) to very general outcomes (such as ‘improving the environment’ or even
‘improving community living standards or wellbeing’).
The Commission’s framework for measuring the performance of government
services in the Report Government Services (ROGS) is set out in figure 1. ROGS
defines performance indicators based on the concept of effectiveness at two levels
(SCRGSP 2006):
•
Cost effectiveness performance indicators are based on what the ROGS defines
as ‘technical efficiency’ (which is akin to productive efficiency described
above). These indicators estimate the unit costs of producing well- defined
outcomes.
•
Program effectiveness performance indicators are based on agreed measures of
access, appropriateness, and quality. These indicators aim to reflect the extent to
which the objectives of government expenditure are achieved.
Using this framework, a service would be judged to be more effective in achieving
its objective if, say, it provided better quality services or better access to clients.
Service options could then be ranked in terms of their degree of effectiveness.
Effectiveness and causality
Indicators of the effectiveness of programs generally focus on measuring the
changes in outcomes that reflect the objectives of the program. Yet, as figure 1
makes clear, outcomes depend not just on the program outputs but also on external
influences. Outputs too may depend on other inputs, in addition to program inputs.
For example, at the individual level, the outcome of interest might be the days of
hospital stay for a particular procedure. The person’s health going into the
procedure is an input that is largely out of the control of the hospital, but will affect
the cost of undertaking the procedure, and well as the length of the hospital stay.
Adjusting for such external influences, or recognising where they differ when
making comparisons, is important in interpreting effectiveness measures.
6
Figure 1
The Report of Government Services framework
External influences
Service
Program or service
objectives
Input
Process
Output
Outcomes
Technical efficiency
Cost-effectiveness
Program effectiveness
Source: SCRGSP (2006)
More broadly, measures of outcomes alone do not provide information about
causality — that the program inputs caused the outcome. Economists apply the
concept of the counterfactual to determine what would have happened in the
absence of the program or policy. The effectiveness of a program should be
measured by the change in the outcome relative to this counterfactual.
Operationalising this usually requires setting targets that imply an improvement on
what would otherwise have happened. Where the counterfactual is an expected
deterioration in the outcome, the appropriate target may be no change, or a smaller
decline, which can be conceptually hard to explain. As targets should be achievable,
this can create a quandary for measuring effectiveness.
The Commission used the term ‘additionality’ in its report on research and
development (R&D) and innovation (PC 2007b) to focus attention on whether
programs to promote R&D were effective. Program effectiveness was assessed by
how much extra R&D was undertaken by firms as a result of the incentives, such as
the R&D tax concessions. Working out what is ‘additional’ requires forming a view
of the counterfactual — the level of R&D a firm would have undertaken without the
incentive. Methods to estimate this counterfactual include modelling, applying
historical trends, and comparisons with similar firms which did not access an
incentive program.
Cost effectiveness
A common ‘effectiveness concept’ is cost effectiveness. For example, COAG’s
Principles and Guidelines for National Standard Setting and Regulatory Action
ON EFFICIENCY AND
EFFECTIVENESS:
SOME DEFINITIONS
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(2004) state that cost effectiveness offers a priority ranking of proposals with the
same or similar outputs or benefits, on the basis of comparative ‘cost per unit of
effectiveness’ or ‘units of effectiveness per dollar’. Also, the term cost effectiveness
is frequently used to cover the case of achieving the maximum level of output for a
stated level of inputs or cost. Thus, a method of delivery of a government service
could be judged to be more cost effective than another when it produces more of the
output for the same cost. The ROGS framework covers both cases — more output,
same cost; same output, less cost — in either case the most cost effective option is
that which has the lowest unit cost.
The cost effectiveness concept can be very useful where a desired outcome has been
agreed, and the main issue is how to achieve this at the lowest cost. For example, it
makes sense to take the lowest cost option of achieving an agreed reduction in
carbon emissions (PC 2007a). This approach avoids the question of whether such
action improves economic efficiency, which depends on the costs relative to the
benefits of the emissions reduction.
The question of the economic efficiency of an option aside, cost effectiveness
measures work well for identifying a preferred option where there is a single clear
measurable outcome. They are more difficult to apply where options differ in both
effectiveness and in cost, and not merely in one or the other. This is a particular
problem where the outcomes are not directly comparable. For example, in the report
on Caring for Older Australians (PC 2011) the Commission had to compare the
costs of supporting older people to remain in their home and receive community
care, with those of moving to a residential facility. The location at which care was
provided affected the outcome, with people expressing a strong preference for home
based care. The outcomes of care at home and care in a residential facility are
valued differently.
The inputs differ too, as family and friends are likely to provide informal care in the
home setting. This illustrates an additional issue with cost-effectiveness measures,
which is which costs are taken into account. Cost effectiveness measures in most
government programs focus on the direct program costs. In the aged care example,
from a public finance perspective the cost effectiveness of home based care
programs might be high relative to residential care. But from an economic
efficiency perspective all the costs, including to informal carers, need to be taken
into account. No easy conclusion can be drawn as to which to prefer, unless
appropriate values or prices can be attributed to the various inputs and outcomes.
However, if satisfactory estimates of the values generated by the two options are
available, then, on efficiency grounds, the option with the larger net benefit is to be
preferred.
8
The relationship between economic efficiency and cost
effectiveness
If an option is deemed to be economically efficient, it must also be the most cost
effective (using the COAG definition of cost effectiveness). The converse is not
always true — cost effective policies and programs need not be economically
efficient.
Cost effectiveness analysis is often used as an alternative to cost-benefit analysis
where it is easier to estimate the desired outcomes, than it is to value them. Taking
carbon mitigation as an example, a cost effectiveness analysis of policy options can
identify the lowest cost approach to a particular reduction in carbon emissions.
However, a cost effectiveness study cannot by itself demonstrate a conclusive case
(on grounds of economic efficiency) for or against the appropriateness of a
proposal, because it is concerned only with possible alternative unit costs, and not
concerned with whether the total costs exceed or are exceeded by the total of
prospective benefits. The beneficial effect, although achieved as cheaply as
possible, may not be worth the cost — that is, it may not contribute to economic
efficiency.
Going further, even if a particular policy option is the most cost effective available,
and even if it does indeed produce more benefits than cost, employing it may not
maximise overall economic efficiency. It may be better to abolish the program
entirely and use the resources to produce something else. That is, a different use of
resources may deliver a more allocatively efficient result, where consumers’ wants
and needs are better met. Achieving the best input mix does not guarantee that the
output mix will be preferred over feasible alternatives.
The term ‘cost effective’ is, nonetheless, sometimes used as shorthand for asserting
that there is a net benefit (that the total benefits of an activity exceed its total costs).
There is a danger of an invalid inference being drawn in this usage, namely, that
there is no better, feasible alternative — doing something else, or doing nothing.
Doing something always has a cost, which is closely related to the counterfactual, as
it is what is forgone as a result of undertaking a particular option. The opportunity
cost is the value of the best foregone opportunity. 8 For example, a heavy handed
approach to regulation to protect consumers may impose compliance costs for the
businesses (which are passed on to their customers in higher prices, back to their
suppliers in lower prices for inputs, or to their shareholders in lower returns). The
8 Analysts cannot evaluate every counterfactual, every conceivable allocation of economic
resources. Therefore, the estimate of opportunity cost is limited to the range of options
considered.
ON EFFICIENCY AND
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opportunity cost of this approach is the difference in these costs compared to an
alternative light handed approach which achieves the desired consumer protection at
least cost.
It is worth noting that the line between cost effectiveness and economic efficiency
becomes more blurred the more broadly the policy objectives (or outcomes) are
defined, and the wider the concept of costs adopted. At the limit, determining that a
policy has cost effectively improved the wellbeing of society would seem to be
equivalent to saying that the policy has improved economic efficiency.
Relationship between efficiency and productivity
In addition to efficiency and effectiveness, the Commission is often asked to
consider the impact of a policy on productivity. Indeed, analysis of Australia’s
productivity performance and the factors underpinning it is a major area of
supporting research undertaken by the Commission. Productivity analysis can be
applied to the whole economy, or to parts of it. Usually, two types of productivity
are considered: partial factor productivity — that is the productivity of separate
productive inputs (like labour, or capital, or electricity); and total factor productivity
or multifactor productivity (MFP) — that is, the productivity of the whole mix of
inputs engaged in production or in value-adding(box 2).
The Commission generally focuses on measures of MFP. This ratio of a volume
index of output to a volume index of inputs is sometimes called ‘technical
efficiency’. However, volume indexes do not always have simple physical or
‘technical’ interpretations. As discussed in box 2, adjusting for quality changes can
be difficult, and the approach taken to constructing the price index used to adjust
value to get a volume measure can affect the estimates.
10
Box 2
The concept of productivity
Like efficiency, the term productivity can be interpreted in a number of ways. As a
general concept, productivity growth is the growth in volume of output relative to growth
in the volume of inputs. However, measures of productivity vary in how inputs and
outputs are calculated. The Commission’s analysis generally focuses on multifactor
productivity, but other productivity measures can also be useful.
Multifactor productivity (MFP) — focuses on the change in the volume of output relative
to the volume of primary inputs — labour and capital. The volume of output for an
industry is the ‘value-added’ by the industry, that is, the total value of sales less the
cost of intermediate inputs. Capital and labour inputs and value added output are
measured by ‘volume’ or ‘quantity’ indexes that adjust the total value for changes in
prices. Hence MFP does not reflect changes in prices, say due to changes in the terms
of trade, or a shift in domestic preferences. Ideally, the volume indexes will be adjusted
to reflect changes in the quality of outputs and inputs, which may also be reflected in
the price. However, in practice such adjustments are limited to where quality can be
measured reliably.
Total factor productivity (TFP) — this concept is very similar to MFP, but it uses volume
indexes based on the total value of output and the total cost of labour, capital and
intermediate inputs.
Labour productivity (LP) — measures the change in the volume of output relative to the
change in the volume of labour inputs. In general labour inputs are measured in terms
of total hours worked, but quality adjusted labour input indexes have also been
constructed. LP growth estimates using quality adjusted labour inputs will be lower
where the quality of labour is growing.
Capital productivity — measures the change in the volume of output relative to the
change in the volume of capital inputs. Measuring the volume of capital accurately is
challenging as quality changes are not uniform across different types of capital, and
utilisation rates and rates of depreciation and obsolesce can vary over time and across
industries.
Firm productivity — while this should refer to the change in the firm’s volume of output
relative to the volume of inputs used by the firm, it is often (incorrectly) used to refer to
a change in the value of the firm’s outputs relative to the cost of its inputs — its
profitability.
Volume indexes are constructed by deflating the value measure with a price index.
There are a number of ways to construct price and volume indexes which have
implications for the productivity measure. It should be noted that there are some forms
of calculation of productivity, using Divisia or welfare indexes, that come closer to
reflecting changes in overall value, or net benefit to the economy.
ON EFFICIENCY AND
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More fundamentally, as the Commission’s report on productivity in mining (Topp
et al 2008) found, there can be unmeasured inputs that affect the measurement of
MFP (or any other productivity measure). For example, the rising prices of minerals
have made it economic to mine more marginal deposits, and mining leads
eventually to resource depletion. As the quality of the resource being mined is not
treated as an input in productivity measurement, productivity estimates reflect both
changes in technical efficiency and in the resource input. 9 One option for industries
which rely on natural resource inputs is to include them in the input index, which
would make MFP a better measure of technical progress. However, this introduces
additional complexities into the measurement, and reduces the extent to which
growth in MFP is reflective of changes in living standards that can be supported by
a country’s economic activity.
Growth in MFP and other productivity measures are, however, only one source of
improvement in living standards. In recent years, the strong growth in Australia’s
terms of trade — the prices of the things produced relative to the prices of those
things consumed — has supported increased income and with it living standards.
This is despite a relatively lacklustre productivity growth performance over the last
decade (Parham 2012). This illustrates the distinction between productivity and
economic efficiency. Allocative efficiency requires that resources move to firms
and industries that provide the greatest net benefit – which depends on relative
prices as well as productivity. The shift of labour and capital into mining and
supporting industries raised Australia’s income, but lowered its productivity growth
(PC 2012). Yet, not allowing resources to move would have reduced the growth in
income in Australia, making people worse off. This demonstrates that it is economic
efficiency rather than productivity that should be the overarching objective of
government economic policies. That said, all else equal, growth in MFP
unambiguously increases the standard of living that an economy can provide for its
population. It is just that an efficient allocation of resources also allows the
population to enjoy the greatest possible gains to trade.
9 They also reflect a capital lag effect as accelerating growth in the capital stock and the time taken
to bring mines into production led to capital inputs effectively being over estimated (Topp et al
2008).
12
Some definitions
1. Technical efficiency. A measure of how well an input (such as a pharmaceutical
drug) is converted into an output (such as hospital separations). Measured as the
ratio of physical output to physical input.
2. Productive/production efficiency. A measure of how well a given value of inputs
(such as salaries, and the costs of equipment and drugs) is converted into output
value (such as the fees paid for surgical procedures and subsequent recovery in
hospital). Measured as the ratio of the value of outputs to the value of inputs.
Productive efficiency is an element of the usual measurement of total or multifactor
productivity.
3. Allocative efficiency. A measure of how well the available resources are allocated to
production that meets the preferences of the population. Measured as a change in
net benefits (broadly defined). The term allocative efficiency is sometimes defined
so broadly as to equate it with the concept of overall economic efficiency.
4. Dynamic efficiency. A measure of how well resources are allocated over time to
meet the current and future preferences of the population.
5. Economic efficiency. A measure of the increase in net benefits; encompassing
productive, allocative and dynamic efficiency An economically efficient option
means that no other option can provide a higher net benefit.
6. Effectiveness (of a program or service). A measure of how well the outputs of a
program or service achieve the stated objectives (desired outcomes) of that
program or service.
7. Cost effectiveness. A measure of the extent to which the cost of resources, used to
produce a specified output or outcome, has been minimised. Cost effectiveness
involves comparisons of the costs of alternative ways of producing the same or very
similar effect; or comparisons of the effect produced by alternative ways with the
same or very similar cost. An option is cost effective if it has the lowest cost of all
the ways of producing the same or very similar effects. This does not mean that the
option necessarily has a positive net benefit.
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References
Bradbury, D. 2012, Minerals and Energy Resource Exploration: Public Inquiry —
Terms of Reference, 27 September.
Council of Australian Governments (COAG) 2004, Principles and Guidelines for
National Standard Setting and Regulatory Action.
Parham, D. 2012, Australia’s Productivity Growth Slump: Signs of Crisis,
Adjustment or Both?, Visiting Researcher Paper, Productivity Commission,
Canberra.
PC (Productivity Commission) 2012, Annual Report 2011-12, ch. 1, Annual Report
Series, Canberra.
—— 2011, Caring for Older Australians, Report No. 53, Final Inquiry Report,
Canberra.
—— 2007a, Productivity Commission Submission to the Prime Ministerial Task
Group on Emissions Trading, March.
—— 2007b, Public Support for Science and Innovation, Research Report,
Productivity Commission, Canberra.
—— 1999, Microeconomic Reforms and Australian Productivity: Exploring the
Links, Commission Research Paper
SCRGSP (Steering Committee for the Review of Government Service Provision)
2006, Report on Government Services 2006, Productivity Commission,
Canberra.
Topp, V., Soames, L., Parham, D. and Bloch, H. 2008, Productivity in the Mining
Industry: Measurement and Interpretation, Productivity Commission Staff
Working Paper, December.
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